Analysts see better bottom line for the sector if policy comes into effect.
Shares of fertiliser-makers zoomed on Tuesday on expectations that urea prices would be deregulated this week. Reports suggest the Committee of Secretaries will meet Finance Minister Pranab Mukherjee on urea deregulation on August 5.
The government has already freed potassic and phosphoric fertilisers with the introduction of NBS (nutrient-based subsidy scheme) with effect from April 2010. However, it kept price and movement of urea under control, which consists of nearly half of India’s total fertiliser consumption.
Stocks of Fertilisers & Chemicals Travancore gained the most on Tuesday moving 10.7 per cent north to close at Rs 45 a share. State-owned Rashtriya Chemicals gained 8.51 per cent on the Bombay Stock Exchange to close at Rs 80.35. Similarly, shares of National Fertilisers and Chambal Fertilisers were up 5.88 per cent and 3.37 per cent, respectively.
Industry analysts said the sector was expecting positive policy moves from the government and that will help companies in their bottom-line. They said these developments can result in 10-15 appreciation in the share prices across the board.
According to experts, with the widening gap between complex fertiliser and urea prices, it is important to bring urea under nutrients-based subsidy scheme and to ensure balanced usage of nutrients. “This policy should result in higher profitability to urea players,” said a research note from Pinc Research.
“At present, the government fixes the price and provides subsidy to the fertiliser companies. We expect, if all goes well, companies will be free to fix the maximum retail prices,” said a research analyst at a Mumbai-based brokerage firm.
Brokerages had also upgraded some of the fertilisers stocks. According to a note from Prabhudas Lilladher, Chambal Fertilisers will be a major beneficiary of the expected urea policy because the company is one of the efficient and biggest private urea players in the country.
Last month, there was a buzz in the market regarding compensation loss on fertiliser bonds along with RBI’s buyback. “The government’s decision to buyback fertiliser bonds should result in easing the working capital for companies and further proposal of compensating for loss incurred on sale of these bonds should provide one time positive impact to the companies’ bottom line,” said analysts.
